Paraguay

The growth track lies ahead

MEDIUM RISK for enterprise

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

Economic risk
Business environment risk
Political risk
Commercial risk
Financing risk

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GDP	USD35.3bn (World ranking 88, World Bank 2020)
Population	7.1mn (World ranking 104, World Bank 2020)
Form of state	Constitutional Republic
Head of government	Mario Abdo Benítez (President)
Next elections	2023, presidential and legislative

A contained fiscal budget and public debt
Low current account deficit
Ample foreign exchange reserves
The government pursues business-friendly policies

The economy is highly dependent on the agricultural sector and weather conditions
One of the poorest countries in Latin America with high inequality and sub-standard infrastructure
Wide informal economy
Low diversification of the economy
High level of corruption, criminality and poor rule of law

Good resistance to the impact of Covid-19

Paraguay is one of the poorest and most unequal economies of South America: 23.5% of the population lives below the national poverty line, according to the World Bank. Yet GDP growth has been dynamic and above the regional average since 2013, driven by domestic demand. Paraguay’s structural vulnerabilities stem from a reliance on the agriculture sector, which leaves it exposed to commodity-price shocks and adverse weather conditions.

The country has been able to weather the Covid-19 pandemic relatively better than its neighbors, with a limited number of deaths and cases. Even though it went through strict lockdown measures and noticed a sharp decline of domestic demand during Q2 2020, Paraguay was able to get back on the growth track relatively quickly. After a growth contraction in 2020 (-0.6%), the country’s economy should grow by +1.5% in 2021 and then return to its previous growth levels of around +5% in 2022. However, such growth levels will depend on the recovery of Brazil and Argentina, Paraguay’s most important trading partners (accounting for 60% of exports and 30% of imports).

Paraguay’s business climate remains weak. According to the 2020 World Bank Doing Business survey, the country ranks 125th out of 190 on ease of doing business. The country’s main shortcomings include starting a business, protecting minority investors and getting credit.

Appropriate policies amid external risk

The central bank’s policies have gained credibility by taming inflation and anchoring expectations through inflation targeting (4% target since 2017). Moreover, since passing the Fiscal Responsibility Law in 2013, the government has showed restraint in public spending. However, due to the Covid-19 related crisis, the fiscal deficit reached -7.8% in 2020 and should slowly reduce in 2021 (-4.9%) and 2022 (-3.4%). Public debt also rose from 26.1% in 2019 to 35.5% in 2020 and is expected remain around 35% in 2021 and 2022.

Paraguay’s current account balance remains stable, with a slight deficit of -0.7% in 2020 that should come back to equilibrium in 2021 before turning slightly positive in 2022 (0.5%). Yet export dependency on primary commodities remains very high (agricultural commodities represented roughly 46% of the country’s exports in 2018) and Paraguay’s real effective exchange rate correlates largely with commodity prices. Foreign currency reserves cover about 9 months of imports (up from around 5 months in 2013), providing an external liquidity buffer.

The government led by Mario Abdo Benitez pursues pro-market policies enacted by the former head of government Horacio Cartes to lower taxation and attract FDIs. Its main challenges include the fight against the Paraguayan People’s Army insurgents (landless peasants occupying farms), corruption and a weak public health system.

Trade structure by destination/origin

(% of total, annual 2020)

Exports	Rank	Imports
Brazil 32.7%	1	35.9% China
Argentina 30.1%	2	21.7% Brazil
Chile 6.8%	3	9.0% Argentina
Russia 4.5%	4	6.3% United States
Uruguay 2.8%	5	2.9% India

Trade structure by product

(% of total, annual 2020)

Exports	Rank	Imports
Oil seeds and oleaginous fruits 28.0%	1	13.4% Telecommunication and sound recording apparatus
Electric current 18.6%	2	9.3% Road vehicles
Meat and meat preparations 12.0%	3	7.3% Petroleum, petroleum products and related materials
Cereals and cereal preparations 10.0%	4	6.1% Electrical machinery, apparatus and appliances, n.e.s.
Feedstuff for animals (excluding unmilled cereals) 7.8%	5	4.7% Office machines and automatic data processing machines